http://www.bloomberg.com/news/articles/ ... g-converts
This seems timely, given the helicopter money era we're in. Why not just fund certain government expenditures, like infrastructure improvements, by just PRINTING the money?
Normally, I'd shudder at this, but let's be serious:
a). There is no serious indication we ever plan to pay off the debt, and if we did, it would very likely be in massively inflated dollars, royally screwing the bondholders.
b). Now that just printing $trillions to bail the government/banks out of a big problem, using ZIRP, perhaps using NIRP, etc., with no credible plan for restoring rates to normal, etc., we're alreadly losing credibility as far as the long term value of US currency. (The EU also).
c). If we're not going to pay off the debt in a meaningful way and are relying on economic growth to keep the system going -- then investing in the infrastructure things we need to make the economy healthy and competitive enough TO provide growth, would seem like an obvious way to go.
d). There are places this wouldn't even seem to have a cost to the economy. If government employs a million people who are otherwise living on social programs, those people earn an income, spend it, and PAY TAXES, it's good for the budget (ignoring the funny money spent, of course).
....
And I know -- the end result seems like hyperinflation. And letting congress do some of this would likely lead to them doing WAY TOO MUCH of this, vastly speeding up the day when hyperinflation arrives due to unpayable debt and lack of credibility/confidence in the currency.
But it's interesting. IF we had the right controls and competent trustworthy folks on Capitol Hill, this might make some sense, instead of just running perpetual large deficits and kicking the can down the road as we fail to do anything CLOSE to adequate about many infrastructure elements, including our educational systems.
So is this just a stupid Hail Mary pass? Or is there something to this?
From discipline's margins, new theory challenges deficit taboo
Calls for fiscal help are growing as post-2008 recovery lags
In an American election season that’s turned into a bonfire of the orthodoxies, one taboo survives pretty much intact: Budget deficits are dangerous.
A school of dissident economists wants to toss that one onto the flames, too.
It’s a propitious time to make the case, and not just in the U.S. Whether it’s negative interest rates, or helicopter money that delivers freshly minted cash direct to consumers, central banks are peering into their toolboxes to see what’s left. Despite all their innovations, economic recovery remains below par across the industrial world.
Calls for governments to take over the relief effort are growing louder. Plenty of economists have joined in, and so have top money managers. Bridgewater’s Ray Dalio, head of the world’s biggest hedge fund, and Janus Capital’s Bill Gross say policy makers are cornered and will have to resort to bigger deficits.
“There’s an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo,” said Thomas Costerg, economist at Standard Chartered Bank in New York. “The focus is now shifting to fiscal policy.”
Currency Monopoly
That’s where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.
Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen -- but they’re also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don’t need to finance spending by collecting taxes, or even selling bonds.
The long-run implication of that approach has many economists worried.
“I have no problem with deficit spending,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. “But this idea of the government printing money -- unlimited amounts of money -- and running unlimited, infinite deficits, that could become unhinged pretty quickly.”
Colored font mine, for emphasis. The "unhinged pretty quickly" is the part that scares me most, and given the proclivities of congress, it seems a justified worry.
To which MMT replies: No one’s saying there are no limits. Real resources can be a constraint -- how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there’s plenty of room to spend without triggering inflation.
The U.S. did dramatically loosen the purse strings after the 2008 crisis, posting a deficit of more than 10 percent of gross domestic product the next year. That’s since been trimmed to 2.6 percent of GDP, or $439 billion, last year.
So, once we have government spending / debt policy built on insanity, do we raise the stakes in the name of making the "right investments"?
Individuals do this all the time with financial leverage (borrowing on their name or an idea or with subprime credit). Of course if the individual crashes and burns, they don't take the system with them.
